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Amazon incents Prime members to select slower shipping

July 31, 2014 10:21 AM

Is slower better for some e-commerce shipments? Amazon.com Inc. aims to find out through a new option for members of its Prime two-day shipping program.

The e-retail giant, long-time champ of Internet Retailer’s Top 500 Guide, has launched a “no-rush” shipping option for members of the $99-per-year program. In return for a bit of patience—instead of getting their goods within two days, customers will receive orders in five to seven business days—Amazon will reward those customers with a $1 credit that can be applied to titles offered via Amazon Instant Video.

“Prime members can stream unlimited movies and TV shows on Prime Instant Video for free, so the credit will apply to any paid content on Amazon Instant Video, excluding HBO titles,” an Amazon spokeswoman says.

Amazon launched the program about two weeks ago, and the spokeswoman did not indicate how long it will run. “We are looking forward to getting customer feedback and will continue to evaluate the program down the road,” she says.

The no-rush option so far has pleased at least one customer, Colin Sebastian, an e-commerce analyst for investment firm Robert W. Baird & Co. “I have selected this option before and received the credit,” he says. “I think it makes sense, as it’s unlikely that all Prime orders are really needed within the normal two-day window. This can help Amazon save on shipping expenses, without degrading customer service. The kicker is that it might help train more Amazon customers to buy paid digital content from the site.”

Amazon does not say how much it spends directly on Prime, but in the second quarter of 2014, the e-retailer’s fulfillment expenses increased 29.3% year over year to $2.38 billion. Spending on technology and content—an area that includes the cost of licensing the movies and TV shows Amazon offers—increased about 40.3% year over year to $2.23 billion, according to Amazon’s most recent financial report.

Another e-commerce analyst, Sucharita Mulpuru of Forrester Research Inc., sounded a different note about the no-rush Prime option. “Amazon has backed itself into a corner with Prime and consumers are now overusing the service because it really is too good to be true,” she says. “It's a fabulous deal for customers and bloody expensive for Amazon.”

Mulpuru anticipates how Amazon might further try to make Prime more appealing. “[Amazon hasn’t] yet given free digital book downloads, at least of singles—that could be next,” she says. “This is a way to save money on shipping.”

Scot Wingo, CEO of ChannelAdvisor Corp., which facilitates retailer sales through Amazon and other web marketplaces, has estimated Prime membership at 23 million and said those shoppers spend, on average, four times more than other consumers who shop at Amazon.com. That means Prime could reach some 50 million consumers given that a Prime member can let family members use the service and taking into account free memberships Amazon has awarded to students and other groups. Sebastian says Amazon has made an estimated 10% of its products available for Prime shipping.

The no-rush program represents one of the most recent tweaks Amazon has made to Prime. Earlier this month, Amazon added more music offerings to its Prime Music feature that comes with Amazon Prime membership. Members now have access to hundreds of thousands of new songs and hundreds of new expert-programmed Prime Playlists.

As Amazon tries to sweeten Prime, e-commerce rival eBay this week launched a Prime-like subscription shipping program in Latin America, with consumers in Chile, Mexico and Colombia able to pay $49 annually to cover shipping fees for all the goods they purchase from eBay sellers in the United States.